ECB navigates economic landscape, adjusts interest rate strategy
Date
1/19/2025 4:11:38 AM
(MENAFN) After an extraordinary series of policy rate increases, the European Central bank (ECB) successfully brought skyrocketing inflation under control last year. The ECB embarked on a record-setting tightening cycle in mid-2022, implementing 10 consecutive rate hikes that pushed the benchmark deposit rate to 4 percent. This move was part of the ECB's strategy to combat high inflation, which had surged to unprecedented levels in the eurozone.
The aggressive rate hikes, coupled with the gradual normalization of global supply chains, helped bring inflation down from its peak of 10.6 percent. By mid-2023, inflation was on a steady decline, moving closer to the ECB's target of 2 percent.
In June 2023, with price pressures seemingly subdued, the ECB Governing Council shifted gears, signaling the start of a new phase marked by interest rate cuts. These cuts gradually reduced the benchmark deposit rate to 3 percent by December, as stated in QNB's economic commentary.
Recently, several ECB Council members have cautiously suggested that interest rates may reach a level by mid-2025 that will no longer hinder economic growth. This cautious outlook reflects a careful balancing act, as the risks are now seen to favor economic stagnation rather than inflation. Going forward, the ECB faces the challenge of fine-tuning its monetary policy to avoid stifling economic activity while ensuring that inflation remains under control.
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